What is a Preferred Supplier List and Why Do So Many Go Stale?

How many times have you opened your procurement system, searched for a supplier, and found a list that looks like it hasn't been touched in years?

There is usually a good reason the list exists. Procurement has assessed suppliers, negotiated pricing and terms, and given the business a clear set of companies it can buy from. Employees know where to go, procurement has more control over spend, and the organization avoids starting the supplier selection process from scratch every time someone needs a product or service.

But when was the last time anyone checked whether those suppliers are still the best options available?

A preferred supplier list can become outdated surprisingly quickly. Suppliers, markets, and prices change. New competitors appear. Your own business (or its priorities) can change too. A list that was carefully crafted five years ago may no longer reflect the market you are operating in today.

What is a Preferred Supplier List?

A preferred supplier list is a group of suppliers that an organization has selected or approved for particular products, services or categories. It gives employees a defined route to market, rather than leaving everyone to find and assess suppliers themselves.

The suppliers on the list will usually have been through some form of procurement process. Depending on the category and the organization, that might involve competitive sourcing, pricing negotiations, due diligence, supplier assessments, contract negotiations or all of the above.

Once approved, those suppliers become the ones the business is expected to use. They may be built into a procurement platform, linked to contracts and catalogues, or referenced in purchasing policies.

The attraction is obvious. Procurement gets greater control over spend and can direct purchasing towards suppliers with agreed commercial terms. Employees have an easier buying process. The organization has greater confidence that suppliers have been properly assessed before they start receiving orders. And suppliers love being on your approved list. 

A good preferred supplier list can therefore support several procurement objectives at once:

• Better spend control and compliance
• Negotiated pricing and commercial terms
• Reduced supplier risk
• Simpler purchasing for employees
• Better visibility of supplier and category spend.

The problem is that all of these benefits depend on the list remaining current.

Why Have a Preferred Supplier List in the First Place?

At its best, a preferred supplier list removes friction from buying while giving procurement greater influence over how the organization spends its money.

Instead of hundreds of employees sourcing suppliers independently, procurement can establish a controlled route to market. Rather than negotiating the same terms repeatedly, the organization can put agreements in place and make them available to the wider business.

There is a supplier management benefit too. Concentrating spend with selected suppliers can make relationships more meaningful and strengthen procurement's negotiating position. It can also make supplier performance easier to monitor because more of the organization's spend is concentrated among suppliers that procurement knows well.

For risk management, having an established supplier base can also reduce the chances of employees bringing unknown suppliers into the business without the appropriate checks.

So, why do so many preferred supplier lists go stale?

One problem is ownership. Procurement may have been responsible for selecting the suppliers in the first place, but ongoing responsibility can become much less clear. Supplier performance might sit with the business. Supplier records might sit with procurement operations or accounts payable. Category managers may be responsible for some suppliers but not others.

Someone needs to connect all of that information and ask whether the supplier base still represents the best available options.

Resource is another issue. Procurement teams have finite capacity, and some categories will always receive more attention than others. Strategic sourcing projects, cost reduction programmes, supplier problems and business priorities can all push routine supplier reviews further down the list.

The Dangers of a Stale Supplier List

A stale list can undermine the commercial value procurement is supposed to create.

Imagine a supplier was selected because it offered the best combination of price and service four years ago. Today, another supplier offers lower pricing, better delivery terms and a broader product range. The business continues buying from the original supplier because that is who appears on the preferred supplier list. Everyone is following the process, but the business is missing an opportunity.

The same issue can arise when supplier performance starts to deteriorate. A supplier that was once reliable may begin missing delivery targets or providing a poorer level of service. Pricing may become less competitive, but nobody goes back to market to find out what the alternatives look like.

A preferred list can also grow rather than evolve. New suppliers get added, but old ones rarely get removed. Over time, a category that should be relatively simple can end up with a long list of suppliers competing for fragmented spend. That makes the procurement operation more complicated and can weaken the negotiating position that comes from concentrating spend.

There is a behavioral problem as well. When employees see that the preferred supplier is no longer offering the best service or value, they may start looking elsewhere. They find another supplier, make an off-contract purchase and work around the process. Once that begins to happen, procurement can end up chasing maverick spend that the preferred supplier list was supposed to prevent.

Indirect Procurement & Preferred Supplier Lists

Keeping a supplier network current is particularly challenging across indirect categories.

Think about the range of spend that can sit outside an organization's core production or resale activity: cleaning, facilities management, uniforms, office supplies, waste, food, packaging, technology and a host of other services. The spend can be fragmented across sites and business units, with dozens or hundreds of suppliers involved.

For a stretched procurement team, keeping all of those categories under active review is a major undertaking. That is where an external procurement partner can make a difference.

How Una Keeps Your Supplier Network Current

A GPO like Una gives procurement teams access to negotiated supplier agreements and additional supplier management capability, particularly across indirect spend.

Una actively manages its supplier network to ensure members have access to the best available suppliers and competitive commercial arrangements. Supplier relationships are continually reviewed, and new market opportunities can be assessed rather than simply assuming that an existing supplier remains the best option indefinitely.

That ongoing work is an important part of the value of a GPO. Our job is to maintain the quality and competitiveness of the supplier network.

At Una, we leverage the combined buying power of our members to negotiate commercial arrangements that individual organizations would struggle to secure on their own.For procurement teams, particularly those with limited resources devoted to indirect categories, that means access to a supplier network that is being actively managed rather than left to age.

The Real Value of a Preferred Supplier List

When an employee selects a preferred supplier, procurement should be able to say why that supplier is there. It should be because the supplier offers the right combination of price, service, capability, reliability and commercial value, based on what the market looks like today.

Una actively manages its supplier network to help ensure members continue to have access to competitive suppliers and negotiated agreements as those markets change.

Want to make sure your preferred suppliers are still the right suppliers? Talk to Una.